Opportunism from the left
This time it's about gas prices (H/T Ex-Donkey Blog):
Democrats Eager to Exploit Anger Over Gas Prices
Gary makes the point that this should backfire on the Dems since their record on energy would have to be viewed through rose-colored glasses to appear merely abysmal.
It may be useful to talk about why gas prices are so high, though. I have a close relative who works with the petrochemical industry, and he passes along a nugget or two from time to time. First, here's an average breakdown of the cost of a gallon of gas from September 7, 2005 (when gas prices were much higher than they are now). Keep in mind that taxes and emissions rules vary widely from state to state, so treat this as typical:
Distribution and marketing costs: $0.07
Credit card fees: $0.09
State excise tax: $0.18
Federal excise tax: $0.18
Dealer Markup $0.20
State and local sales tax: $0.23
Refinery cost and profit: $0.89
Crude oil cost: $1.54
RETAIL PRICE $3.38
Now here's what's happened in the US market since the beginning of the year:
1. All gasolines have to meet new environmental specifications for sulfur content (30 ppm). For those regions that had reformulated gasoline (RFG)(like California), it wasn't as big a shock since most of those 'boutique' gasolines had lower sulfur content. However, 'conventional' gasoline, which comprises most of the market, averaged around 250 ppm+ of sulfur. So going to 30 ppm wasn't a no cost exercise. Refiners have had to built specialty units (one project my relative told me of cost $100 million to construct) to remove all that icky sulfur from the gasoline.
2. Many states have mandated elimination of MTBE. MTBE in gasoline helped refiners meet oxygen requirements as well as add more gallons to supply. One requirement in the Energy Policy Act of 2005 (EPACT 2005) mandates ethanol in gasoline. MTBE can be blended at the refinery, then shipped as part of the gasoline via pipeline from Houston up to Virginia, for example. You can't do that with ethanol. It has to blended with the gasoline at the local terminal in your city. You can't add as much ethanol as you can MTBE due to vapor pressure limits. Ethanol is subsidized and costs more than MTBE. In effect, a multi-whammy - higher cost, less supply. And added to the pain is the spectre of shortages in some regions as terminal owners deplete their stocks since they can't mix the two blends together.
3. It is during Feb-Apr period that the refining industry has to change from 'winter' gasoline to 'summer' gasoline specifications. That is a costly change in that you can't put as much of the 'cheap' stuff into what you sell as you can in the winter (like butane) due to tighter vapor pressure, NOx, toxics limits. Summer gasoline has and will cost more. Period. Thank the Democrats and the environmentalists for the regulations that drive the prices up in the summer.
4. It's fine to talk about price hikes as gouging, but does it make logical sense that the oil industry would let the average price drop by over 80 cents/gal as it did from Sept to Nov last year? If they were really gouging as too many people claim, they could have easily done so - crude oil prices dropped to the high fifties during that period (about a 15% drop) yet gas dropped by a third. What many people also forget is that part of the cost of refining isn't just crude oil (which makes up over 50%), but also the cost of energy. With high natural gas prices, you have a higher cost to refine.
5. A lot of hay has been made about the record profits made by oil companies. The Democrats have already set out it's attack dogs like the ultra-lefty Foundation For Taxpayer and Consumer Rights (FTCR) with the message of profit=gouging. Oil companies are like most businesses, their models for markup are based on a percentage of the cost. I don't know what the margins are at Exxon (I could probably find out) but lets assume that it's 10%. At $1 /gallon, they make 10 cents. At $2, its 20 cents. Gas prices are higher, so the profit will be as well due to their business model - not because of "gouging".
If you're interested, here's more on the subject:
Fortune Magazine - The Truth About Oil - Oct 2005
Energy Information Administration - A Primer on Gasoline Prices (a little dated, but mostly holds up well)
